UnitedHealth Pays the Price

UnitedHealth (UNH Quote) is paying a steep price for indulging its superstar CEO.

William McGuire, one of the most accomplished corporate leaders in recent history, must leave the company. McGuire resigned as UnitedHealth's chairman and will soon vacate his post as CEO after collecting backdated stock options that helped turn him into a paper billionaire. The company's stock jumped nearly 8,500% with McGuire at the helm.

UnitedHealth's top lawyer and five of its board members, beginning with the chairman of its compensation committee, are headed out the door as well.

The ousters come after independent reviewers uncovered significant evidence that McGuire had improperly pocketed in-the-money stock options and oversaw a generous compensation program that allowed others, including his popular right-hand man, to do the same.

Stephen Hemsley -- who has served as the company's second-in-command for years -- has been spared, however. Indeed, Hemsley is poised to become the company's next CEO when McGuire officially retires in December.

Analysts felt some measure of comfort as a result.

"While yesterday's announcement wasn't the best possible outcome for United's stock, it was pretty close," CIBC analyst Carl McDonald wrote after reviewing Sunday's announcements. "In our view, Hemsley has always been the key to this situation -- and since he's staying, McGuire's departure should not have a major detrimental impact on UNH's stock."

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